Opinion: How driverless cars will kill the oil business

Self-driving cars will be much more efficient, which means the demand for oil is going to fall.

By

AmotzAsa-El

Columnist

Inventions, Thomas Edison said, come not by accident but by work.

That is what Intel Corp.
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figured the other week as it decided to part with $15.3 billion — about as much as Israel’s entire defense budget — in order to buy advanced driving-assistance systems (ADAS) developer Mobileye .

With 663 employees already on board and 4,000 engineers now planned to join them, Mobileye is indeed proof that inventions are a matter of hard work rather than accident. Then again, the invention that Intel expects from its new subsidiary is all about accidents, or rather, their extinction, a historic transition that will unsettle many things, but especially the need for oil.

Having conceived of the sensor system that warns drivers of potential collisions, Jerusalem-based Mobileye has since proceeded to focus on the autonomous car’s development in collaboration with BMW
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and in competition with Tesla
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, Uber, Google
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, Apple
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, and others.

Though Mobileye dominates the ADAS market, whose value is forecast to cross $40 billion by 2021, Intel bought it not for that part of its business, but for its resolve to spearhead the driverless-car revolution.

In doing so, and even if it paid too much as some suspect, the Santa Clara-based chipmaker’s move constitutes a financial vote of confidence in assessments that the driverless car has ceased to be a matter of whether, and become a matter of when.

Mobileye minority-share holder Shmuel Harlap’s prophecy that “in two decades it will be illegal to drive” may be overly optimistic, but it is clear by now that the age of human driving has peaked and its twilight is steadily approaching.

Rubber, steel and gas

Driverless cars will drastically reduce accidents because they will replace reckless drivers, they will never speed, and they will be equipped to see and hear better than any of us.

As previously explained here, this social gospel will be partly offset by massive layoffs, first in the auto-repair industry and then also in auto production, because a car’s ability to drive independently between a couple’s workplaces will make them shed their second car, and the subsequent emergence of an autonomous cab might make many shed the first car as well.

Mankind, in short, is about to demand fewer cars and the repercussions will surface on multiple plains.

Microeconomically, the decline in accidents will raise households’ available income, as insurance rates will fall. Macroeconomically, the decline in automotive demand will potentially hurt economies such as Turkey’s and Poland’s, where car production has in recent years become a dominant source of income, already totaling some 12% of exports in each.

All these will dwarf compared with what the autonomous car will do in the commodity markets.

An average car carries more than 50 pounds of copper while the automotive industry swallows 12% of global steel output and tires gobble 65% of global rubber output. Such figures will decline in tandem with shrinking demand for cars, and down with them will go the prices of these and many other commodities, from aluminum to glass.

Yet the automotive revolution’s deepest market impact will be in the energy sector, where the autonomous car’s impact will be harsher than anything oil-reliant economies have so far endured.

Worse than shale

Oil producers were challenged four times since 1973, when they hiked within one autumn a barrel’s price from $3 to $10.

First, the world began conserving power, making smaller cars and turning off lights in office buildings, and then it intensified prospecting, soon finding vast deposits in the North Sea, all of which ultimately pushed down a barrel’s price
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from $35 in 1980 to $10 in 1986.

Oil’s next setback came when wind, sun and water were harnessed as alternative energies, and its latest blow came with fracking, which triggered the great slide that followed summer 2014, when a barrel of Brent crude sold for more than $100 before tumbling to $38 by winter 2016.

The common denominator among all these factors is that they either expanded supply or regimented demand, but they did not affect the actual need for oil. The driverless car will. Rather than make people drive smaller cars or more efficient engines, and rather than pour more oil into gas stations, it will simply take millions of cars off the highways by fomenting a ride-sharing culture, as indicated by Ford’s recent announcement that it is developing a fleet of driverless cars for shared rides.

In addition, the loss of concern for accidents will allow cars to be lighter, and therefore burn less gas, as will the disappearance of speeding, sudden acceleration, and parking-searches.

Silicon Valley’s great effort to end human driving is therefore the biggest challenge the oil industry has faced since its inception in the 19th century.

Saudi Arabia, the world’s most oil-dependent large economy, knows all this, and is therefore seeking a post-oil future through its Vision2030 program. Even so, and as part of that blueprint, the kingdom is now preparing the mother of all IPOs next year by issuing 5% of its oil company Aramco’s shares.

Yet Riyadh’s announcement Monday that it is slashing Aramco’s tax rate from 85% to 50% is a telling display of its fear that oil’s smell nowadays can no longer be trusted to dizzy investors; certainly not as much a driverless car.

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